EnCana Corp., Canada's largest natural-gas producer, plans to spend $5.8 billion on oil and gas projects in 2007, a 6.5 percent drop from this year as it focuses on less-costly wells.

Combined production of oil and gas in 2007 will be little changed at an estimated 4.28 billion cubic feet of gas equivalent, compared with 4.3 billion this year, EnCana said in a statement today. The Calgary-based company will double its quarterly dividend to 20 cents a share and extend its stock- buyback program.

EnCana Chief Executive Officer Randy Eresman is slowing gas exploration in Texas and other areas as a boom in drilling increases demand for labor and boosts costs. Other energy companies including ConocoPhillips, Devon Energy Corp. and Nexen Inc. also announced reduced capital budgets for next year.

Drilling costs are expected to rise 5 percent to 10 percent in 2007, Eresman, 48, told analysts and investors on a conference call today.

The company said it expects to drill 4,260 wells in 2007, a 17 percent increase from this year. A larger percentage of the wells will be shallow ones that are less costly to drill, company spokesman Al Boras said in a telephone interview.

Shares of EnCana fell 30 cents to C$60.69 on the Toronto Stock Exchange. The stock has risen 15 percent this year.

Production

Production of gas, which accounts for about 80 percent of EnCana's output, is expected to rise 2.7 percent to 3.46 billion cubic feet, the company said.

About $700 million will be used to increase output from Alberta's oil-sands deposits, EnCana said. Oil-sands production will drop 28 percent to an estimated 31,000 barrels a day as the company begins to share output with ConocoPhillips of Houston, its partner in a joint venture that begins operating in January.

The partners agreed in October to spend $10.7 billion over 10 years to boost output from Alberta's oil-soaked sand and refine the heavy crude into fuels such as gasoline and diesel.

EnCana said it plans to complete its planned buyback of 10 percent its outstanding shares by year-end, having repurchased 9.4 percent so far. An additional 3 percent to 5 percent of outstanding shares will be bought back next year, the company said.